The spot price of the Newcastle high ash 5,500kcal/kg, for example, is currently at about US$75/t FOB after being at $70-72/t for most of 2012. As a result, Chinese traders have been looking at other markets to source coal of a similar quality. Despite this, Port Waratah Coal Services (PWCS), Australia’s largest coal terminal operator located at the NSW port of Newcastle, exported 1.63Mt of thermal coal to China in January 2013. This is about the average monthly tonnage PWCS exported to China in 2012.
“The Chinese have been targeting Richards Bay coal because it is that much cheaper than Newcastle coal at the moment,” a Sydney trader said.
“Prompt months are trading $10 plus below Newcastle. Whilst this persists, I expect to see them to continue to do so after the Christmas New Year.”
A Singapore-based trader said Chinese buyers were always on the look-out for alternative sources of supply and he had not seen any marked switch in suppliers.
However, other traders have reported increased interest from Chinese buyers in Indonesia’s higher quality sub-bituminous coals in recent weeks as a substitute for the Newcastle high ash material.
There appears to be some tightness in the Indonesian market with interest in 4,700 NAR cargoes at around the low US$60s FOB from East Kalimantan for March delivery, about a dollar higher than markets had seen last week,” another Singapore trader said.
The rally in the spot price of Newcastle standard spec coal during the past two weeks has been attributed to supply constraints in Queensland as result of flooding caused by ex-tropical cyclone Oswald. The closure of the Blackwater and Moura rail lines has prevented the railing of any coal to the Port of Gladstone for the past 10 days. The Blackwater line reopened last night and the Moura line is expected to be operating by February 25.
The Sydney trader said the Australian coal supply constraints were having little impact on global thermal coal prices because both producers and end-users were well stocked.
“The floods have been resolved and the impact is minimal, if in fact anything, and the rail strike probably won’t have an impact either,” he said.
“So the market has already started to discount the earlier gains. The fundamentals haven’t changed so it’s hard to see prices rallying too much.”
The loss of thermal coal railing volume as a result of the Blackwater and Moura rail closures is estimated at about 1Mt. The rolling strikes by Pacific National (PN) Coal train drivers in the Hunter Valley is also expected to reduce coal railings to the Port of Newcastle by about 300kt for every day of the strikes.
The first Singapore trader said the Queensland floods had seen the Newcastle spot price rise quite sharply with some traders prepared to paid up to $0.70/t above the index price for prompt deliveries. While the 48-hour strike by PN Coal train drivers this weekend was unlikely to impact prices, if the rolling strikes continued for an extended period it also was likely to have an effect, he said.
A Singapore futures trader said he expects the Newcastle spot price will continue to rise ahead of negotiations between Australian producers and Japanese power utilities for the Japanese fiscal year (JFY) long term contracts. He said there been a great deal of activity by producers in the derivatives market in the past couple of weeks with a number of producers selling down their hedged positions in the expectation that prices would rise.
“Prices are generally massaged around this time of the year, in particular in respect to indices,” he said.
The Singapore trader said while the over-the-counter trades were being settled at $4-5/t below index prices at the beginning of the year, “at the moment there is no discount to the indices”.
The complete story can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market. With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.
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